It has been 20 years since Exchange Traded Funds (ETFs) were first listed on the Johannesburg Stock Exchange (JSE). Since then, ETFs have become well-liked investment vehicles available for both retail and institutional investors. Their popularity is closely linked to their simplicity and affordability.
An ETF is a listed investment product that tracks the performance of a "basket" of Shares, Bonds or a single commodity. These "baskets" are known as indices. An ETF can be bought or sold in the same way as an ordinary Share. ETFs are ideal for any investor wishing to gain exposure to different sectors, asset classes, both locally and globally.
The simplicity and affordability of this investment vehicle allows investors to grow their wealth and get first-hand access to the world of investing through the stock exchange. They also provide a solution to those who are new to investing and looking to build wealth through the stock market.
Where did it all begin?
The first prototype for the present-day ETF was listed in Canada in early 1990. From one fund, the ETF market grew gradually, eventually making it a prevalent investment vehicle used locally and internationally.
In South Africa, the Johannesburg Stock Exchange introduced its first ETF to investors on 27 November 2000, the Satrix Top 40. The Satrix Top 40 became the bourse’s pioneer ETF listing, its IPO was one of the biggest to have occurred on the JSE at the time.
Fast forward to today
ETFs became popular with time and a greater variety of assets were introduced. Today, the JSE offers 78 different types of ETFs, ranging from broad local equity market exposure, local and global debt, local and global property exposure, access to precious metals, Africa (ex-SA) equity ETFs and Smart Beta ETFs.
“The ETF market has become an integral part of many investors’ portfolios with the objective of harnessing the potential of the stock market in an easy and cost effective manner. This investment option continues to offer attractive and diverse opportunities for both existing and first-time investors,” says Adèle Hattingh, Manager of Business Development and Exchange Traded Products at the JSE.
The simplicity and affordability of ETFs have attracted the attention of both young and older generations. A recent study by Charles Schwab & Co Inc. has found that ETFs are the investment vehicle of choice for 91% of millennial investors. Nearly 80% of millennials surveyed see ETFs as their primary investment vehicle in the future.
This sentiment is shared by a young Satrix investor who is only 20 years old. His view is that investing from a young age has given him a sense of responsibility. “The younger you start investing for the long term, the better your chance of accumulating wealth for the future and retirement,” he said. Another Satrix investor said that she selected ETFs as her first-time investment instrument because of their “low costs and accessibility”.
This comes as no surprise to the JSE as ETFs have a number of features that make them an investment vehicle that is ideal for young investors with small amounts of capital to invest. For example, with ETFs, young investors are able to build a comprehensive and diverse portfolio with small investment contributions. ETFs are dynamic, innovative, simple to understand and flexible, which appeals to the younger investor.
Whether you are putting money away for your child’s education, a down payment for a home or your golden years, the simplicity and accessibility of ETFs can help you achieve your financial goals.
“The JSE is proud to be celebrating this significant milestone of 20 years of ETFs. With 78 ETFs now listed on the JSE and having exceeded the R100bn mark in our total ETF market cap, we are pleased with the progress the industry has made. We will continue to create an environment that supports issuers and market players in providing innovative and diverse investment options for the benefit of retail and institutional investors. The JSE is committed to improving access to smart financial products such as ETFs to assist South Africans in becoming savvy investors while improving the saving culture,” continues Hattingh.
“Potential investors looking to start investing in ETFs may open an account with an authorised JSE stockbroker or open an investment plan with an ETF provider or Financial Services Provider. This way, they can easily buy ETFs using a monthly debit order or a single lump sum investment,” concludes Hattingh.
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